The industry took some devastating blows during a recentCongressional hearing on Hurricane Katrina claims. I know, becauseI was on Capitol Hill to witness the public flogging firsthand.

The most bizarre part was Rep. Gene Taylor serving as bothwitness and prosecutor! The Mississippi Democrat testified, thenjoined the panel to question other speakers! While this isapparently common practice, it's a scene right out of a Kafka novelor Marx Brothers movie.

It was also unfair that State Farm–the hearing's primetarget–apparently wasn't invited to testify. Thus, charges againstthe carrier went unchallenged as Rep. Taylor and his state attorneygeneral, Jim Hood, presented documents allegedly proving State Farmblew off legitimate wind claims and dumped them on the federalflood program.

Lawmakers also hammered away at how the industry recorded bigprofits while many Katrina claims went unpaid. The clearimplication was insurers got fat by not paying what they owepolicyholders.

The industry's sole witness and sacrificial lamb–InsuranceInformation Institute President Robert P. Hartwig–kept politelyreminding the panel that while insurers profited from all linescombined, the homeowners sector took a huge loss.

Mr. Hartwig tried valiantly to keep the problem's scope inperspective, reporting that over 95 percent of 1.1 million Katrinahomeowners' claims in Louisiana and Mississippi were settled withinone year, with fewer than 2 percent in dispute.

Rep. Maxine Waters, D-Calif., demanded to know whether insurancecompanies had “talked together”–presumably about how to denyKatrina claims and get away with it–”behavior normally calledcollusion” under federal antitrust law.

Mr. Hartwig emphatically stated that “no such conversations”took place–but when pressed, wisely retreated to safer legalground, saying, “I am absolutely unaware of any suchconversations.” Of course, no one presented any hard evidence thatinsurers conspired on how to cheat policyholders. It was allconjecture and innuendo, but the damage was done.

Afterward, the Institute said in a statement that “the industrydid not, as was suggested, conspire to defraud homeowners seekingcompensation for property damage they suffered.” State Farm calledit “absurd” to charge “the industry colluded to avoid payingclaims…Insurers do not and did not operate in this manner.” But thegavel had long since banged the hearing to a close.

So, where do we go from here?

For all the usual bluster and showboating, Rep. Taylor andfriends did raise some valid criticisms of how the system works,exposing potential conflicts on the part of adjusters and carrierswhen it comes to determining causation. There were also allegationsof bad actors at work, and those responsible should be heldaccountable if the evidence confirms fraud.

My concern is we may be witnessing a repeat of the contingencyfee scandal that rocked the industry a couple of years ago. Onceagain, we might have a very small group of individuals caughtabusing the system in smoking gun documents. Such revelations setoff a chain reaction that harms the vast majority of those in thebusiness just doing their jobs as best they can under difficultcircumstances.

The only thing for sure right now is that the industry won't beallowed off the hot seat anytime soon. There will be plenty moreuncomfortable hearings, with big changes demanded by outragedpoliticians–many determined to strip insurers of their antitrustexemption.

But I think the industry's critics will generate more smoke thanfire. My advice? Stick to the facts and let Congressional angerburn itself out.